Friends Provident turns tables on Resolution

Friends Provident today turned the tables on investment group Resolution by proposing it should wear the trousers in a new tie-up, after spurning Resolution's advances on Monday.

Poacher turned prey: Clive Cowdery

In a letter to Clive Cowdery's takeover vehicle Resolution, Friends Provident Group said it would be prepared to strike a deal as long as it remained the holding company of the enlarged firm.

Friends is proposing to effectively buy Resolution in an all-share deal that would see its boss Trevor Matthews retain his position as group chief executive.

Resolution chairman and founder Cowdery would become executive deputy chairman responsible for consolidation strategy, while Mike Biggs at Resolution would take on the role of chairman under the Friends proposal.

Friends is now inviting Resolution back to the table to talk in a bid to agree a deal that is 'fair to both sets of shareholders'.

It was disclosed on Monday that Friends had brushed off advances from Resolution, which is an investment firm set up by insurance tycoon Cowdery to buy up under-performing financial services firms.

Sir Adrian Montague, chairman of Friends Provident, said the group had 'thought long and hard' about Resolution's proposal.

Friends said it had made clear the terms of Resolution's approach remained 'wholly inadequate', but was interested in a deal on fair terms. It also stipulated that any deal between the two would need to see ongoing 'meaningful' dividend share payouts to investors.

'The potential of the new group will only be realised if we have the right structure from the outset,' said Sir Adrian. 'That is why we have made a proposal today to Resolution that Friends Provident should be the holding company and that there should be a conventional board structure.

'If Resolution is prepared to accept these fundamental principles, then we would be happy to sit down with them and agree terms which are fair to both sets of shareholders.'

Mr Cowdery sold his first company - the UK's biggest manager of closed life insurance funds, also called Resolution - to privately-owned Pearl in 2008. That company had also previously been set to merge with Friends Provident before Pearl muscled in on the deal.

Since launching his current Resolution venture, Mr Cowdery has been linked with a number of insurers after raising £600m from investors for potential deals.

Friends - which has a stock market value of £1.4bn - had reportedly shunned Resolution's initial all-share approach due to concerns over the potential price as well as corporate governance at Guernsey-based Resolution.

The City regulator, the Financial Services Authority (FSA), said in March that it was investigating the actions of Resolution directors over the sale to Pearl, although the FSA cleared them in May.

Friends said today it wanted 'full transparency for shareholders, customers and regulators in a structure complying with corporate governance best practice' in the event of any deal with Resolution.

Friends was founded as a mutual in 1832 and demutualised in 2001. It has 2.5m policyholders and around 3,600 employees. The group has joined the rest of the insurance sector in suffering share price declines this year amid fears that falling markets could hit their capital reserves.

Friends also registered a worse-than-expected 40% plunge in first-quarter sales in the first three months of the year. The firm racked up annual losses of £871m after writing down the value of its majority stake in fund manager F&C. The holding has since been distributed to shareholders after Friends failed to sell it last year.